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Punjab, Kerala, Chhattisgarh say majority view being pushed by Centre on GST compensation issue

The central government had on Sunday said that 21 states have opted for Option 1 — borrowing of Rs 97,000 crore through an RBI-facilitated special window to meet this year’s compensation deficit of Rs 2.35 lakh crore.

Written by Aanchal Magazine | New Delhi |
Updated: September 22, 2020 10:09:41 am
GST revenue, GST revenue states loss, states of GST revenue loss, GST revenue loss, CAG, Nirmala Sitharaman, Narendra Modi, India news, Indian ExpressIn October 2019, GST revenues had contracted by 5.29 per cent to Rs 95,380 crore, marking the third instance of a contraction since the July 2017 rollout of the GST regime.

A day after the Centre enlisted support of 21 states and union territories for its borrowing plan to meet the compensation deficit under the Goods and Services Tax (GST) regime, three of the remaining 10 opposition-ruled states voiced their concerns about the ultimatum being issued to them for choosing the borrowing options before the next GST Council meeting slated for October 5.

Kerala, Punjab and Chhattisgarh stated that the federal structure and the consensual nature of the GST Council is getting eroded with the majority view of the ruling party at the Centre being adopted as the choice for all, even as 10 opposition-ruled states have still not opted for the borrowing options.

The central government had on Sunday said that 21 states have opted for Option 1 — borrowing of Rs 97,000 crore through an RBI-facilitated special window to meet this year’s compensation deficit of Rs 2.35 lakh crore. While 21 states and union territories, namely Andhra Pradesh, Arunachal Pradesh, Assam, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Jammu & Kashmir, Karnataka, Madhya Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Odisha, Puducherry, Sikkim, Tripura, Uttarakhand and Uttar Pradesh have opted for option 1, Opposition-ruled states/union territories such as Jharkhand, Kerala, Maharashtra, Delhi, Punjab, Rajasthan, Telangana, and West Bengal, as well as Tamil Nadu are yet to detail their choice to the Centre.

Punjab Finance Minister Manpreet Singh Badal said that the GST Council “cannot be run on the whims and fancies or the discretion or the executive decision”. “This is not how the GST was designed, it is not the way the GST Council was supposed to function,” he told The Indian Express.

The dispute resolution mechanism, stated in Article 279 of the Constitution, needs to be activated, he said. “In the GST Compensation Act, under Section 279, there is a dispute resolution mechanism that needs to be activated within the GST Council. We need to exhaust that. One cannot opt for voting on every matter.”

Badal further said that the distinction of compensation deficit on the basis of Covid-19 pandemic and non-Covid pandemic is wrong while questioning the methodology for arriving at the estimates for GST compensation deficit and the borrowing figures.

Kerala Finance MInister Thomas Isaac said the Centre should stop serving ultimatums to states. “Centre government is only a member of the GST Council with 33.3 % of votes. It is the Council that has constitutional powers to take decisions. Call the Council immediately. Stop issuing threats. India is still a federal country,” he tweeted.

Chhattisgarh Health Minister TS Singh Deo, who represents the state in the GST Council, said states are being arm-twisted into making a choice in line with the political party in power and the Council is not being run on consensus. “The central government or head of the GST Council should stand back from arm twisting. It does not grace the federal structure of our country that states should be made to get in line with whatever the party in power or Centre is thinking, party having a majority in the GST Council is wanting to be pushed through. It is very unfortunate,” he said.

Deo further said that no financial burden is being created from borrowing since it will be repaid from the compensation cess proceeds, therefore, the Centre can borrow for meeting the compensation deficit instead of asking states to borrow. He said the votes allotted to states at the time of the formation of the GST Council were equal, and decisions should be taken by consensus and not majority. “When the GST Council was formed, the smallest, tiniest state, whether it is the northeastern state or any other state, whether it was Chhattisgarh or whether it was Uttar Pradesh, the largest populated state in the country, everybody was given the same vote because it was ensured that everyone’s voice was an equated voice, not based on size etc., so the respect of the states would be maintained and that is why the attitude of consensual decision making was adopted from Day 1. Why did they do that? They should have said that every decision would be taken by majority…why would we want to go and put forward our views when everything is going to be decided on a majority,” he said.

Several non-BJP ruled states have been at loggerheads with the Centre for asking them to borrow to bridge the compensation deficit.

GST compensation payments to states have been pending since April, with the pending amount for April-July estimated at Rs 1.5 lakh crore. The GST compensation requirement is estimated to be around Rs 3 lakh crore this year, while the cess collection is expected to be around Rs 65,000 crore – an estimated compensation shortfall of Rs 2.35 lakh crore.

In the previous GST council meeting held on August 27, the Centre had proposed two options to the states: to either borrow Rs 97,000 crore (shortfall only on account of GST implementation) from a special window facilitated by the Reserve Bank of India or the complete shortfall of Rs 2.35 lakh crore (including Rs 1.38 lakh crore shortfall due to Covid-19 pandemic) from the market.

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